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Pensions Will Be Cut By UpTo 10% If Calculation Is Extended To 35 Years

BySam Brad

Aug 6, 2021

After the agreement for the first part of the reform of the public pension system, both the experts, the social agents and the Executive itself assume that the thorniest aspects of the plan of measures will be discussed in the second part of the negotiation, next 2022 One of the elements that the Ministry of Inclusion, Social Security and Migrations has left pending is the extension of the years of contributions for calculating the pension.

At the beginning of this year, it was speculated based on the leaks of documents that would have been sent to Brussels that the extension of the 25 contribution years to 35 years would be explored, for the calculation of the regulatory base of the retirement benefit.

If this assumption is carried out and taking into account the different Social Security regimes, theThe self-employed would be the most affected with more than a 10% average reduction in pensions, while the decrease for salaried employees due to an increase of ten years in the calculation period would be 8.6%.

Although the final document, approved by the European Commission, does not reflect the specific number of years in which the calculation period would be extended, it does mention that it will be one of the measures that will come into force as part of the reform of the public system .

Here, sources close to the negotiation assure this medium that it is one of the measures that will be put on the social dialogue table for the second leg of the reform , although they clarify that the eventual increase in the years quoted for the calculation would be accompanied by a Prebend by which the contribution gaps – those periods in which the worker has not been able to contribute to Social Security due to cuts in their work activity – would be compensated by Social Security.

More contributivity
However, whatever the decision is made at the dialogue table, this increase in years of contributions for the calculation of the pension is one of the ways that the political parties outline in the recommendations of the Toledo Pact to increase the contributivity of the System .

In other words, so that the pension is more and more correlated with the volume of contributions made during working life. For this reason, the parties call in this recommendation to progressively increase the contributivity of the System, in which an integration of the special Social Security regimes is also proposed to facilitate the process. However, the result of the measure seems that it will bring a decrease in the average pension, in most cases.

Although the increase in the calculation period does not necessarily imply a reduction in the amount of the initial retirement pension – it may happen that a worker has been harmed by a cut in his career in recent years, prior to the retirement, in which case the measure would benefit them assuming an improvement in the benefit compared to if they had taken 25 years of contributions instead of 35 years -, in most cases, by the simple ascending path of remuneration that is assumed.

In all jobs, this extension would take more years of the initial, less fruitful, thus worsening the calculation of the pension.

Specifically, the calculations made by the Research Group on Pensions and Social Protection, this measure would mean an 8.6% cut in the initial amount of pay for pensioners. However, if we differentiate between the general scheme for salaried workers and the self-employed scheme, a notable difference can be seen. If wage earners would assume on average a reduction in pay also of 8.6%, the self-employed would see this cut rise to 10.3%.

“The self-employed regime would be more affected, with a drop of 10.3%, compared to the 8.6% reduction in the general regime, due to the fact that in the self-employed, the contribution gaps are not integrated, that is, the unlisted months are computed with zero euros, strongly penalizing the value of the regulatory base “, point out the authors of the study.

Further, the expert authors of the study point to the convenience of carrying out this measure gradually. Increasing the number of years, from 25 to 35, for calculating the regulatory base “is a measure that would improve the contributivity of the system, by increasing the relationship between contributions and benefits, but it also affects the amount of the initial pension.

In addition, from the point of view of higher contributivity, it would be convenient for the calculation period to extend to the entire working career . Naturally, it is recommended that this process be done gradually, with periods that span at least a decade. “, they point out.

Duration of the race, crucial
Further, on the determinants that imply the variation in the amount of the payments, it is observed that the effect of the extension of the calculation period depends more on some characteristics than on others.

The most relevant is the duration of the working career, since short careers would see their regulatory base decrease by 14.9%, compared to long careers (equivalent to more than 43 years and eight months of contributions), which would suffer half a reduction (7.5%).

“As a consequence, women , who have shorter careers, would be more affected by the change, and indirect discrimination on the basis of gender could occur,” the researchers warn.

The explanation of the influence of the different duration of the work career on the regulatory base is by the method of integration of the gaps : the shorter the career, the more the need to integrate gaps when passing from 25 to 35 years and the greater number of them with 50% of the minimum base than with 100%.

Furthermore, the retirement age also has a relevant effect, with the impact on delayed retirements being greater (11.6%) than on early retirements (7.9%), with ordinary ones being in an intermediate situation (8.9%). “Much of this effect is due to the negative correlation between retirement age and career and not due to the age effect itself,” they conclude.

Sam Brad

The Great Writer and The Passionate Poet As Well, He Graduated from University Of Florida in Journalism and Brad have around 12 years of experience in news and media section.

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